Govt. & Taxes, Philippines

Tuesday, July 25, 2006

On LGUs' real property tax

The LGUs' real property tax (RPT) is one of their largest revenue sources aside from the internal revenue allotment (IRA) that they receive from the national government. In many Metro Manila cities and municipalities especially, business taxes and RPT comprise more than half of their total annual revenues.

The cities of Manila, Makati, Mandaluyong, Quezon, others are known for their high business taxes and RPT. Below is an example of RPT by the Makati City government.

My friend owns a 105 sq.m. condo unit in a condo building in Buendia avenue. The market value is around P5M, and the city government's assessed value (something like 25% of market value) is P1.12 million. The city government of Makati collects from the owner
P16,791 basic tax + P11,194 special education fund (SEF) = P27,985/year.

This is already a big amount to be paid by any condo unit owner, since there are other payment to be made aside from the unit price itself, like the building association dues (for the building's security, lighting and elevator, garbe collection, maintenance of amenities like swimming pool, etc.).

Now, if you're delayed in paying those exorbitant RPT, the penalties can come out to be as big, if not bigger, than the base taxes. Continuing the case of my friend's case, here are the additional numbers.

He was sent collection notice by the Real Tax Division, Finance Department, Makati City government, by August or September of 2005, stating that his penalties (for delayed payment of RPT) were as follows:

2003: P10,746 in basic tax + P7,164 SEF
2004: P 6,716 in basic tax + P4,478 SEF
2005: P 1,343 in basic tax + P 896 SEF.

Note the big amount that he has to pay in 2003 alone, basic taxes & SEF + penalties = P45,895!
That was equivalent to P3,825/month, most likely bigger than the building monthly association dues. Now, since that assessment in penalties was made in August or September of 2005, and he has not paid those until now, the valuation of penalties assuming that he will be able to pay in August 2006, should be bigger. The same increases in penalties valuation for 2004, 2005 and 2006!

If you are a condo unit owner, payment of monthly association dues for the building is generally justified as you see the security guards, fire extingueshers and fire sprinkler system, the elevators and lights in the lobby and corridors, the maintenace of swimming pool, small gym and sauna, and so on. In short, you see the value of your payment 24 hours a day, 7 days a week.

In the case of RPT imposed by the city or municipal governments, the value of your payment are not exactly visible. Like Buendia where my friend lives, daily traffic on weekdays is bad, so you spend more on your car fuel than what is necessary. The surrounding and nearby roads are far from smooth, lots of potholes, so you spend more on your car maintenance than what is necessary. Police visibility is seldom felt (assuming the police officers can come quick and are courteous), that is why buildings and establishments have to hire private security guards because government police are either few and absent, or discourteous and lazy.